How Much Can I Get in a Reverse Mortgage?

A reverse mortgage allows homeowners to convert a portion of their home equity into accessible funds without selling their property. This financial tool is designed for older adults, providing a way to supplement income or cover expenses without requiring monthly mortgage payments. Instead of making payments to a lender, the lender makes payments to the homeowner, either as a lump sum, regular installments, or a line of credit. The loan balance accumulates over time and typically becomes due when the last borrower leaves the home permanently.

Key Factors Influencing Your Loan Amount

The amount of money available through a reverse mortgage is influenced by several specific factors. Understanding these elements is essential for homeowners considering this financial option. Each factor contributes to determining the principal limit, which represents the maximum funds that can be borrowed against the home’s value.

The appraised value of your home is a primary determinant of your available loan amount. For federally insured Home Equity Conversion Mortgages (HECMs), the Federal Housing Administration (FHA) sets an annual Maximum Claim Amount (MCA). For 2025, this limit is $1,209,750, meaning that even if a home is appraised for more, the loan calculation for an HECM will not consider value beyond this cap. This FHA limit ensures a standardized maximum for how much home value is recognized in the loan calculation, regardless of the property’s actual market value.

The age of the youngest borrower, or eligible non-borrowing spouse, also significantly impacts the principal limit. Generally, older borrowers qualify for a higher percentage of their home’s value. This is because the loan is expected to be outstanding for a shorter period, reducing the lender’s risk over time. Actuarial tables are used to assess life expectancy, which directly correlates with the amount of funds offered.

Current interest rates play a substantial role in determining how much you can receive. Lower expected interest rates typically result in a higher principal limit. This is because a lower interest accrual rate allows for a larger initial loan amount while still managing the future loan balance. HECM interest rates can be fixed or adjustable, with current adjustable rates ranging from approximately 6.760% to 7.700% and fixed rates from 7.560% to 7.930%.

Mandatory obligations and various loan costs reduce the gross principal limit. These include paying off existing mortgages, upfront mortgage insurance premiums, origination fees, and closing costs. Funds may also be set aside for future property taxes and homeowner’s insurance if a financial assessment indicates this is necessary.

Calculating Your Available Funds

Determining the amount of funds you can access involves a specific calculation that combines the influencing factors. This process identifies the principal limit, which is the total amount available before certain deductions.

The calculation begins with the Principal Limit Factor (PLF), a percentage published by the FHA. This factor is based on the age of the youngest borrower and the expected interest rate of the loan. The PLF is then applied to the lesser of the home’s appraised value or the FHA HECM Maximum Claim Amount to establish the initial principal limit.

Proprietary reverse mortgages, also known as jumbo reverse mortgages, operate differently from HECMs. These loans are not federally insured and are not subject to the FHA’s Maximum Claim Amount. This allows them to often provide higher loan amounts for homes with values exceeding the HECM limit. While offering more flexibility for high-value properties, their terms, including interest rates and fees, are determined by private lenders and can vary significantly.

After the initial principal limit is determined, various mandatory deductions are made to arrive at the net available funds. These deductions include the initial mortgage insurance premium (typically 2% of the home’s value or FHA lending limit for HECMs), loan origination fees (up to $6,000 for HECMs or 2% of the maximum claim amount), and other closing costs like title insurance and appraisal fees. Any existing mortgage balance must be paid off from the proceeds, and funds may be set aside for property charges like taxes and insurance. The remaining amount is the net accessible fund, representing what the borrower can actually use.

How You Receive Your Funds

Once the available loan amount is calculated and approved, borrowers have several options for receiving their funds. These disbursement methods offer flexibility to meet diverse financial needs without affecting the total loan amount.

One option is a lump sum disbursement, where all available funds are received at closing. For HECM loans, specific limitations apply to the amount taken in the first 12 months. Borrowers can generally access the greater of 60% of their principal limit, or the total of mandatory obligations plus an additional 10% of the principal limit. This rule ensures a portion of equity remains available for future needs or growth within a line of credit.

A line of credit allows borrowers to access funds as needed over time, similar to a revolving credit account. A unique feature of the HECM line of credit is its growth rate; the unused portion grows over time at the same interest rate as the loan, plus the annual mortgage insurance premium. This growth means the available credit increases, providing a larger pool of funds for future use. Borrowers only incur interest on the amount they actually draw.

Tenure payments provide regular, equal monthly disbursements for as long as at least one borrower lives in the home as a principal residence. This option offers a steady stream of income, useful for covering ongoing living expenses. Payments continue for the life of the loan, regardless of how long the borrower remains in the home, provided the loan terms are met.

Term payments involve receiving regular, equal monthly payments for a fixed period chosen by the borrower. This option is suitable for those who need a predictable income stream for a set number of years, perhaps to bridge a gap until another income source begins. Once the specified term ends, payments cease, even if the borrower continues to reside in the home.

Borrowers can combine these disbursement options to create a customized plan. For instance, a homeowner might take an initial lump sum to pay off an existing mortgage, then establish a line of credit for future expenses. A combination of monthly tenure payments and a line of credit can provide both regular income and a reserve for emergencies. This flexibility allows homeowners to tailor the reverse mortgage to their specific financial situation and preferences.